It looks like the UK economic recovery may have run out of steam as poor data this morning meant the pound lost even more ground against the dollar over the course of trading today. GBP/USD exchange rates fell from $1.6050 to a low of $1.5921 despite the on-going U.S government shutdown and the possibility of a U.S default.
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So what has caused today's movement?
Over the last couple of months the UK economy has been performing very well which in turn has boosted the pounds performance. It looked as though the UK was turning a corner and the recovery was quickly gaining momentum. However, what we have witnessed over the last week should act as a wakeup call and proves things aren't as rosy as we had all hoped. This morning saw the release of the latest manufacturing production and industrial production figures, both of which were very disappointing. Manufacturing production had been forecast to rise by 0.3% but came in at -1.2% while industrial production also under performed coming in at -1.1%. The data had an immediate impact on the pound's value, dropping against most of its major counterparts to bring Sterling/dollar to the lowest level we have seen since the 18th September as the graph below shows.
So will rates recover?
As I have said a few times in the past, it is almost impossible to try and predict which way exchange rates will move, especially during this very volatile time. They key factor behind the GBP/USD crosses performance over the next few weeks will depend heavily on what happens in the U.S.
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It seems the shutdown has now been priced into the mid-market price but the longer the government remain at loggerheads the bigger impact it will have in the long term. U.S. economic growth will start be affected which will force the Federal Reserve to continue the QE programme which in turn will continue to dent the dollars value.
There is also every chance the U.S. will reach their debt ceiling in eight days time and if an agreement cannot be reached it will leave the them unable to repay their debts. If that were to happen I can only really see exchange rates going one way and that is up, how far they will go though is anyone's guess!
Obviously this is all ifs and buts and if the shutdown comes to an end and government officials do agree to raise the debt ceiling we could see GBP/USD fall back even further. If you need to buy or sell dollars in the coming weeks and want ensure you are making the most from your transfer use the link below to complete the contact form or call me directly on 0044 (0) 1442 892 065 for a free, no-obligation currency consultation.
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